This study is aimed at ascertaining the impact of internet banking services expenditure on the profitability of commercial banks in Nigeria; with the focus on Zenith Bank Plc. Internet technology holds the potential to fundamentally change banks and the banking industry. Its objective is to examine the relationship between mobile banking service expenditure and the profitability of Zenith bank plc.It helps to know whether or not there is a significant relationship between mobile banking service expenditure and the profitability of commercial banks.Information for this study is gathered from the annual reports of the Zenith Banks from the year 2005-2017.The design for the study is ex-post-factor research design.A regression analysis was prepared and data obtained.The result reveals that there exists a positive and significant relationship between the log of internet banking services expenses and the return on assets.Based on the following findings of this study,the following policy recommendations are suggested: The empirical results of the study have revealed significant relationship between the log of internet banking services expenses(IBSE) and return on asset (ROA).We therefore, advocate for more ATM facilities which should be placed at strategic location for easy access.

TABLE OF CONTENTS

Title Page i

Declaration ii

Approval Page iii

Dedication iv

Acknowledgements v

CHAPTER ONE: INTRODUCTION

1.1 Background to the Study 1

1.2 Statement of the Problem 4

1.3 Objectives of the Study 5 1.4 Research Questions 6 1.5 Research Hypothesis 6 1.6 Significance of the Study 7 1.7 Scope of the Study 7 1.8 Definitions of Terms 8

CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction 9

2.2 Conceptual Framework 9

2.3 Theoretical Framework 11

2.4 Empirical Review 16

2.5 Summary of Literature Review 27

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction 28

3.2 Research Design 28

3.3 Nature and Sources of Data 28 3.4

Return on Assets (ROA), Return on Equity (ROE) and Margin 28

3.5 Return on Equity 29

3.6 Model Specification 29

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF RESULT

4.0 Presentation and Analysis of Data 32

4.1 Evaluation Based On Economic Criteria 34

4.2 Evaluation Based On Statistical Criteria 35

4.3 Student T-test 35

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of Findings 37 5.2

Policy Recommendations 38

5.3 Conclusion 39

References 40

Appendix 44

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The coming into existence of the internet has helped to greatly improve the operations of commercial banks in Nigeria. The delivering of electronic services to businesses and consumers has been going on for years now. The internet is a fast spreading service that allows customers to use computers or any of their internet enabled devices to access account-specific information and possibly conduct transactions from remote location such as at home quickly and successfully. Debit cards, credit cards, ATM cards seem to make life very easy because without them, today’s life will be full of misery. In this recent time, retail banks are now offering their services mostly through their internet branches. Internet banking is simply an electronic payment system which helps customers of any financial institution or bank to conduct any transaction.

The introduction of these internet enabled devices brought increased enabled devices for competition in the banking industry, which has gone a long way

to reducing customers waiting time for banking transactions. In Nigeria, this networking began with LAN (Local Area Network), MAN (Metropolitan Area Network) and later the WAN (Wider Area Network).The coming into existence of the internet banking has made transaction and data processing very accessible for quick management decision making. The rate of wholesale and retail banking services has been increased through internet banking.The prospects of reducing the cost of operations revenue actually is seen as a motivator in the investment in internet banking by banks according to Simpson, J. (2002). However,on the other hand the adoption of internet banking has also brought notable challenge to the industries in terms of exposure of risk. Since the introduction of this system, it has been noticed that the volume of deposits has increased,and also the fraudulent practices in Nigerian banks.That is the reason why Ovia, J. (2001) stated in the mid 1990s Nigeria’s banking scene has witnessed phenomenal changes which can be seen in the enormous volume and complexity in service delivery or product liberalization of finance and process re-engineering in business.

In the recent time, it has been observed that a large number of literature have totally ignored the internet banking and compare electronic money with substitution of currency through electronic gadgets such as a virtual currency and smart cards. Internet banking is simply when devices are being used. For example, Freedman (2000) proposes that electronic money and internet banking is made up of three devices; access cards, stored value cards and network money. Electronic money is the sum of network money and stored value cards. The most fascinating about this view is that electronic money and internet banking are no longer processes but devices, Shy and Tarkka (2002),Santomero and Seater(1996) have presented models that identify conditions which alternative electronic payments substitute for cash. Banks, since the inception of the use of internet banking product in the late 1980’s, have not made their presence to be felt much.

However, not many studies have been done on the profitability of commercial banks in Nigeria. The fact still remains the reality of using IT in banks is necessitated by the huge amount of information being handled by these banks on a daily basis.The softwarae used by banks is usually renewed on short term basis which incurs huge financial costs on banks. Capital providers expect that they would gain tremendous returns which may accrue from the project as information technology driven by the internet is adopted. Since the introduction of internet banking, Nigerian banks have been forced to invest more in assets in order to meet up its competitive positioning. Much earnings have been retained to meet up with this obligation which led to the denial of dividend for shareholders with expectation that the future dividend will be fatter. According to Basel committee on banking supervision, internet banking is defined to include the provision of retail and small value banking product and services through electronic channels as well as large value electronic payment and other wholesale banking services delivered electronically.

1.2 Statement of the Problem

Internet technology holds the potential to fundamentally change banks and the banking industry.An extreme view speculates that the internet will destroy old models of how bank services are developed and delivered DeYoung (2001).The widespread availability of internet banking is expected to affect the mixture of financial services produced by these banks. In addition, industry analysis outlining the potential impact of internet banking on cost savings,revenue growth and risk profile of the banks have also generated considerable interest and speculation about the impact of the information technology on the banking industry.

However the fact that internet banking is fast gaining acceptance in Nigerian banking sector does not assuredly signify improved banks performance nor would conspicuous use of internet as a delivery channel make it economically viable,productive or profitable.This study sought to fill the exist research gap by answering the following research questions:does internet banking affect profitability of commercial banks in Nigeria?

1.3 Objectives of the Study

The main objective of this study is to examine the impact of internet banking on profitability of commercial banks in Nigeria, using Zenith bank PLC as a case study. Other objectives are:

i.To examine the relationship between mobile banking service expenditure and the profitability of Zenith bank PLC.

ii. To examine the relationship between Automated Teller Machine service expenditure installed and the profitability of Zenith Bank PLC.

iii. To examine the relationship between credit or debit card issued to customers service expenditure and the profitability of Zenith Bank PLC.

1.4Research questions

In the light of the objectives of the research, the following research questions were considered pertinent:

i.What is the relationship that exists between mobile banking service expenditure and the profitability of Zenith Bank PLC?

ii. What is the relationship that exists between Automated Teller Machine service expenditure and the profitability of Zenith Bank PLC?

iii. What is the relationship that exists between credit or debit cards to consumers service expenditure and the profitability of Zenith Bank PLC?

1.5 Research Hypothesis

i. H_o: There is no significant relationship between mobile banking service expenditure and the profitability of commercial banks.

. H₁:There is a significant relationship between mobile banking service expenditure and the profitability of commercial banks.

ii. H_o: There is no significant relationship between Automated Teller Machine service expenditure and the profitability of commercial banks

H₁: There is a relationship between Automated Teller Machine service

expenditure and the profitability of commercial banks.

iii. H_o: There is no significant relationship between credit or debit bank issue service expenditure and the profitability of commercial banks.

H1: There is a significant relationship between credit or debit bank issue service expenditure and the profitability of commercial banks.

1.6 Significance of the study

With this study, commercial banks are able to understand banking in a new dimension. It will help to highlight the various importance of cashless banking and increase profitability if these measures are properly taken care of. This study has helped to introduce a new model for commercial banks to adopt-the customer convenient model. This model will help the commercial banks in gaining more money, enlighten managers of commercial banks on how to serve customers and also better loyalty from customers.

1.7 Scope of the study

This study is going to cover the POS (Point of Sale) and ATM channels which is in the internet banking investment and profit after tax on Zenith Bank PLC from 2005-2017. Other banks could not be covered due to their inadequate disclosure on internet banking investment.

1.8 Definition of terms.

Internet banking: This can also be known as on-line banking, virtual banking and e-banking. It is an electronic payment system that enables customer of a bank to conduct a range of financial transactions through the financial institutions website.

ATM(Automated Teller Machine): An ATM combines a computer terminal, record keeping system and cash vault in one unit, permitting customer to enter a financial firms book keeping system with either a plastic card containing a Personal Identification Number(PIN) or by punching a special code number into a computer terminal linked to a financial firms computerized records 24hours a day.

POS (Point Of Sale);is the time and place where a retail transaction is completed.